Big firms had rough 2nd quarter

Many didn’t hit their targets or saw operating profits drop

Leading Korean companies posted disappointing results for the second quarter, as many either failed to meet market projections or saw their profits decline compared to last year.

Some remain optimistic that these companies’ second-quarter performances have been the result of seasonal factors and temporary hikes in costs, and believe they will turn around in the third quarter. Others worry that Korean companies are losing their core competitiveness and Chinese competition is catching up fast.

A week ago, Samsung Electronics announced a second-quarter performance that showed its operating profit increased 5 percent to 14.9 trillion won. Its operating profit ratio in the second quarter was 25.4 percent, almost matching its all-time record of 25.8 percent set in the first quarter of this year.

While it was a strong performance, it exposed a problem; Samsung’s reliance on semiconductors is growing.

While the operating profit ratio of its DRAM memory unit has reached nearly 70 percent in the second quarter, Samsung Electronics’ mobile phone and display businesses have been struggling. The profit of its IT mobile unit, which includes the company’s smartphone business, fell 25 percent year-on-year to 2.67 trillion won ($2.4 billion). Hyundai Motor, Korea’s leading automaker, is in a worse situation, as its operating profits tumbled 29.3 percent year-on-year despite favorable conditions, including the Korean won’s depreciation against the U.S. dollar and the government’s recent moves to lower the individual consumption tax, which could boost sales.

Growing global trade conflicts and intensifying competition in the local market are negative factors that could harm Hyundai in the future.

As a result, Hyundai Motor’s part supplier Leehan in June requested a debt workout from its main creditor, the Korea Development Bank (KDB). This is the first time since 2008 that a key Hyundai Motor supplier requested a debt workout.

The shipbuilding industry continues to struggle, as Hyundai Heavy Industries reported an operating loss of 175.7 billion won and Samsung Heavy Industries suffered a 100.5 billion won operating loss.

The display industry has also been struggling. LG Display posted an operating loss of 228.1 billion won. The market estimated the operating loss to be lower, at around 216.6 billion won. LG display’s accumulated losses in the first half of this year amount to 326.4 billion won, which is a stark contrast to the first half of last year, when the company reported a record operating profit of 1.83 trillion won. The larger-than-expected operating loss was largely considered to be the result of falling LCD panel unit prices due to Chinese competition. Chinese companies have been aggressively expanding in the global LCD market. According to IHS Markit, the Chinese company BOE recently became the world’s largest LCD supplier, with a market share of 21.5 percent, pushing down LG Display to 20.2 percent.